The pound retreated on Thursday after the Bank of England (BoE) struck a more cautious tone than expected following its latest policy meeting.
- US dollar ends the month weaker
- Trump’s tax plans cause concern
- USD Monthly lows: £0.77, €0.91, AU$1.30, NZ$1.41, C$1.32
- USD Monthly highs: £0.80, €0.94, AU$1.34, NZ$1.45, C$1.36
Although many were left questioning what Trump had actually managed to achieve during his time in office, his impact on US dollar exchange rates was clear.
The US dollar initially surged after Trump was elected back in November on hopes that Trump’s promises of massive changes to tax and spending would give the US economy a shot in the arm.
"Look, there’s some very good things about a strong dollar, but usually speaking the best thing about it is that it sounds good. It’s very, very hard to compete when you have a strong dollar and other countries are devaluing their currency.”
- Donald TrumpHowever, so far Trump has been thwarted in his attempts to push through his replacement to Obamacare, backtracked on his demands for funding for the US/Mexico border wall and unveiled a much-hyped tax reform document which could have fit on the back of a postage stamp.
Over the course of the month Trump also sanctioned a missile strike on a Syrian air base in response to a chemical weapons attack and was at the centre of rising tensions between the US and North Korea.
All this has shaken confidence in the President’s ability to affect change and depleted demand for the US dollar.
USD exchange rates also weren’t helped by Trump’s sudden U-turn on interest rates. Despite condemning the Federal Reserve’s low interest rate policy while on the campaign trail, the President came out in favour of lower borrowing costs in mid-April. This (in combination with his remarks about the damaging impact of a strong domestic currency) sent the US dollar tumbling against the majors, with USD/JPY slumping to its worst level in five-months.
So, will Trump remain the main cause of US dollar movement in May?
Although Trump will continue exerting a significant influence on USD exchange rates, the Federal Reserve may prove more responsible for how the currency performs in the weeks ahead.
If the central bank looks on course to hike interest rates in June the US dollar could recover recent losses. However, any signs that the recent turbulence is making the Fed rethink its plans to increase borrowing costs three times (or more) in 2017 is liable to send USD to new lows against currencies like GBP and EUR.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)